5.5 million student-loan borrowers will struggle to restart payments in January, a consumer watchdog finds — but a third of them could have their balances completely wiped out if Biden's debt cancellation plan goes through
- The CFPB said that 5.5 million student-loan borrowers could struggle to repay debt in January.
- But one-third of them could have their balances completely wiped out from Biden's debt relief plan.
Millions of student-loan borrowers are projected to struggle if they're thrown into repayment next year — but that could all change if President Joe Biden's debt relief plan follows through.
On Wednesday, the Consumer Financial Protection Bureau released an update to an April report analyzing the risk factors borrowers face when the student-loan payment pause ends, which is currently set for January 1, 2023. Those risk factors include being delinquent on student loans pre-pandemic, having assistance on student-loan repayment pre-pandemic, having student loans under multiple companies, being delinquent on other credit products since the pandemic began, and experiencing new third-party collections on debt since the pandemic began.
In the April report, the CFPB projected that 5.1 million borrowers had two or more of those risk factors that indicated they would struggle when entering repayment, and now, the bureau projects the number has risen to 5.5 million when borrowers are set to resume payments early next year.
But, there's good news in the report — as many as one-third of the borrowers with two or more risk factors could have their student-loan balances completely wiped out under Biden's debt relief plan, which would cancel up to $20,000. As the CFPB said, 19% of those borrowers currently have balances under $10,000, and 16% have balances between $10,000 and $20,000.
"So, despite worsening credit outcomes overall, the cancellation of some student loan debt means that fewer student loan borrowers are likely to be at risk of payment difficulties when federal student loan payments resume in January 2023 than they otherwise would be," the report said. "And many borrowers with multiple risk factors who still have outstanding balances when payments resume may have reduced balances going forward."
The report referenced the Education Department plans to roll out a new income-driven repayment plan that would make monthly payments more affordable by capping them at 5% of a borrower's discretionary income, rather than the current 10%.
Still, this relief is ultimately dependent on whether the courts decide Biden's student-loan forgiveness plan is legal. Two weeks ago, the 8th Circuit Court of Appeals placed a temporary pause on the relief following a lawsuit filed by six Republican-led states that argued the debt relief would hurt their states' tax revenues, and while the policy is not officially blocked, the Education Department cannot actually discharge any student loans until the 8th Circuit makes a final decision.
Biden said on Thursday that 26 million borrowers have already submitted their applications for relief through the online form at studentaid.gov, and by the end of this week, the Education Department will have approved 16 million of them for debt cancellation.
"That's 16 million Americans, so far, who should be seeing student debt relief in the coming days," Biden said. "But that relief is on hold – because Republican elected officials are doing everything they can to deny it, even to their own constituents."
The White House has not commented on whether it will consider extending the student-loan payment pause beyond its December 31 expiration, and for now, borrowers continue to wait for a ruling from the 8th Circuit.